World’s Top Two Oil Players, Russia and China, Turn to Gold and Yuan

As China launches their own yuan-and-gold-backed oil exchange, it’s easy to dismiss as simple political maneuvering. Anything China can do to knock the USD down a few pegs, to get it further away from the singular dominant world currency of trade, helps bolster their world leadership profile while lessening that of the US.

But the reason the USD became the world’s oil currency was because the US imported more oil than anyone else and Kissinger negotiated the condition, primarily with its main supplier, Saudi Arabia. Now? China is the main importer and its main supplier is Russia. The US is no longer in position to call the shots for the world oil market.

The US dollar has been dominant as the global reserve currency for a century. It was backed by gold, and the phrase, “good as gold,” had a literal meaning. Each dollar bill was worth its equivalent in physical gold. This made the dollar the world’s most respected and accepted currency.

These days, the dollar is joined by the euro and the yen as accepted currencies. No longer dominant, the dollar is losing its global position. Can it survive?

By 2017, Russian replaced Saudi Arabia as the world’s major oil producer, with China importing more oil than anyone else. The characters in the oil game have changed. And the new players want to back the price of oil with the Yuan. The Chinese and Russians have been buying physical gold for several years and intend to use it to back the Yuan. The days of the dollar supremacy may be at an end as the power and price of gold continue to rise.

Other countries are now faced with a choice: whether to keep and to add to their gold reserves or hold on to the dollar, which is backed with $123 trillion in debt.